But UBS equity strategist
David Cassidy
said that while the Fed’s quantitative easing program (QE) had been a factor in the share market rally, it was not the key driver.

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“Equities were quite cheap from mid last year, which has potentially been a more important catalyst," he said.

Mr Cassidy said it was difficult to separate any supportive impact from QE from the improvement in the US economy – such as the housing market – but he noted that US corporate earnings had also been reasonable.

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“I don’t buy the argument that equities have been kept alive by QE and if stimulus was wound back it would be interpreted [by equity markets] as the US being on a sustainable recovery path," Mr Cassidy said.

The UBS strategist said bond yields had a long way to rise before threatening the equity rally from a valuation perspective.

Others give more weight to stimulus as a factor in the US equity rebound.

Auscap Asset Management portfolio manager
Tim Carleton
pointed to asset inflation as a result of stimulus packages from the US, Europe and Japan.

“We’re likely to have a pull-back in US equity markets and a jump in bond yields – there’s the risk it could be severe," Mr Carleton said.

“But I think we’re a long way off from US [stimulus] being wound back, given we’ve just seen another country [Japan] embark on a massive program."

Morgan Stanley strategist
Gerard Minack
warned that equity markets outside the US had stalled and that macro-economic weakness could put pressure on the rally.

He pointed to lacklustre manufacturing and employment data from the US this month as consistent with the bank’s view that fiscal tightening – 1.75 per cent of gross domestic product – would hurt growth in the short term.

US bond markets saw a mild sell-off in response to the Fed’s March minutes, though yields for 10-year Treasuries at about 1.79 are still low by historical standards.

More broadly, both Mr Cassidy and Tyndall head of fixed income
Roger Bridges
pointed to the European Central Bank’s undertaking to underwrite bond markets as a critical reason for investors being more confident.

Mr Bridges said successive US stimulus packages, which have kept bond yields low, had prompted investors to reassess their returns.

But it was not until ECB president
Mario Draghi
’s promise last year to do “whatever it takes" to prevent a euro zone break-up that markets had rallied strongly, he said.

“If QE is tapered off, bond yields are unlikely to rise as much as people expect," Mr Bridges added.

He noted that while stimulus programs had helped investor confidence, their contribution – if any – to economic growth was difficult to assess.